Critics of Wayne County Executive Robert Ficano say his policies on benefits have harmed the pension system.

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Detroit Free Press Staff Writer

Wayne County’s credit downgrade from Moody’s Investors Service this week is the latest financial blow to an already struggling government.

But does it portend an emergency manager for Michigan’s most populous county?

Local officials say no, and state officials wouldn’t speculate.

“The Department of Treasury is in regular contact with county officials and is aware of its financial situation,” spokesman Terry Stanton said Friday. “As we do with other local units of government, Treasury will continue to work with the county as they address the situation.”

Under Michigan law, treasury officials would have to complete several steps, including appointing a review team and possibly negotiating a consent agreement, before an emergency manager could be appointed.

“The Wayne County problems are real, and I was surprised by how bad their situation is,” said Jan Lazar, a former emergency manager in Highland Park who now works for the consulting firm the Mercer Group. “But that is way short of needing someone to come in and take it over.”

Wayne County suffers many of the same problems that have crippled Detroit: falling revenue, underfunded pensions and chronic budget deficits. But the county’s bonded debt is a fraction of Detroit’s.

But Detroit’s problems weigh on the county. Allen Park, Hamtramck and Inkster also have emergency managers, as do the Detroit Public Schools and Highland Park Community Schools.

“If you get enough holes in the boat, it brings down the whole boat,” Lazar said.

Lazar said the county should consider folding its pension system into the larger Municipal Employees Retirement System, a nonprofit which manages retirement plans for more than 800 local governments in Michigan. The move would save money and help take some of the politics out of pensions, she said.

Wayne County has more than $800 million in unfunded pension liabilities. Ficano insists the pension fund problems come from poor investment choices by the pension trustees and a 13th check sent to pensioners as a partial offset for inflation. Ficano’s critics insist overly generous pensions awarded by Ficano, including letting people in their 40s retire with full pension and health care benefits, have harmed the pension system.

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Moody’s downgraded Wayne County’s bond rating one notch Thursday, citing “continued depreciation of the tax base coupled with a lack of sufficient control over annual spending.”

The drop, from Baa2 to Baa3, leaves Wayne County one notch above junk bond status and nine ranks below Oakland County and eight below Macomb County. A lower bond rating typically means investors will demand a higher interest rate when they buy county bonds.

The downgrade, which includes a negative outlook, comes as county officials are considering a tax increase to raise revenue for a budget that has been in deficit since 2010. Added to that is the jail project that has cost millions of dollars and is now halted while the county seeks potential buyers for the property.

County Commission Chairman Gary Woronchak, D-Dearborn, said Friday that the commission isn’t likely to ask for the tax increase.

“We need 10 votes to put it on the ballot, and we’re not anywhere close to 10 votes,” Woronchak said.

County tax revenues have fallen $125 million annually in recent years as property values, especially in Detroit, have plunged, and the county now faces a structural deficit of about $70 million, Woronchak said.

But that kind of data is hard to explain amid headlines about the potential to scrap a new jail project after spending more than $100 million and jackpot pensions awarded to appointees.

“It’s not just a bungled jail project or a bloated pension that’s causing the problem,” Woronchak said.

“Moody’s cites the annual loss of property tax revenue and economic challenges in southeast Michigan as contributing factors in their downgrade along with overspending by public safety elected officials,” county spokeswoman June West said Friday. “They also note that county management has been proactive in identifying and implementing cost reductions. In fact, the county’s work force has been reduced by more than 25% in the last five years, and health care costs and spending in other areas have been significantly reduced.”

County officials need to attack spending, said Louis Schimmel, the emergency manager in Pontiac, who has served similar roles in Ecorse and Hamtramck.

“Labor and personnel is your top item,” Schimmel said. “Labor contracts are the No. 1 item, and I also would deal with non-union contracts. We read an awful lot of abuses in that area.”

After that, Schimmel said, officials need to consider dumping enterprises they can’t run efficiently and review all purchasing to look for ways to save money.

“I haven’t studied Wayne County, but I’m sure there are a lot of opportunities to save money,” Schimmel said.